basics #1: title goes here five steps to selecting your

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Forex System Development Workshop

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Basics #1:Five Steps to Selecting Your Trader Type

Welcome

G’day, Howdy, Guten Tag, Ni Hao, Вітаю, Hallo, Konnichiwa, Chào and welcome to the Forex System Development Workshop.

Live and Interactive

Don’t be a Shy Sally or a Bashful Barry, ask questions,

take your time.

What This Workshop is Not About

Finding the “Holy Grail” Trading System.

You Can Make a Lot of Money By Not Being Perfect

A good system you can trade with few mistakes is better than a high-return system that you find difficult to trade (and it is much easier and faster to develop).

What the Workshop is About

“[Trading] is real life, not some bulls**t strategist fantasy world” – Martin Taylor, Market Wizard

Helping you to build a robust trading system that you can trade to achieve your goals.

What makes a good system?

You need a system that fits your beliefs, is balancedwith your lifestyle and achieves your objectives.

It’s Not Rocket Science

It just takes the right knowledge and the time and discipline to put it together.

Stop You Going Down the Wrong Rabbit Hole

You can spend a lot of time looking at the wrong things – a little bit of knowledge can be very dangerous, especially if the person is “sure”

they are right.

Only About 5% of System Development is the Entry

Your entry is only one of several of the cogs in a fully functional strategy – and is of less

importance.

Each Part of Your System Should be Elegant… not cluttered.

You Don’t Need to Start From Scratch

You can pick and choose from what works.

Questions

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Five Steps to Selecting Your Trader Type

Get Clear on What You Want From Your Strategy

“You have to start with your goal” – Ray Dalio

Design a Strategy to Achieve Your Goal

“Define a target, a strategy consistent with the target, a set of disciplines to follow, and risk management

guidelines. Then trade, track and evaluate your performance.” – Ari Kiev, Market Wizard

Step #1 Choose Your Trading Timeframe

First choose your trading timeframe.

Fit Trading to Your Lifestyle

Trading needs to be balanced with the requirements of everyday life.

Be Honest with Yourself About:

• Family and work commitments • The amount of time a day you can spend on trading• The amount of time your system will take to trade vs.

research • Your requirements for peak performance (like sleep!)

Some Tips

• Trading should not be strenuous • Let go of most of the opportunities you see and

focus on the very best ones• Lack of organization and mistakes are what will cost

you the most• Be very considerate of your partner or spouse• Before you place a trade you need time to get

centered

Day Trading

• Minimum of 2 hours a day trading • 30 minutes preparation and review • 1 hour charts or lower• Active trade management throughout the session• Trades typically closed within the day• 1 to many trades a day

Swing Trading

• 30 minutes to 1 hour a day trading• 4 hour/ daily charts• 15 minutes preparation and review • Trades managed 1-4 times a day• Trades typically closed within two days to two weeks • 4-10 trades at any one time

Position trading

• 15-30 minutes a day trading or can be done once a week

• 15 minutes preparation and review • Daily, weekly monthly charts• Trades managed once a day to once a week• Trades typically closed within two weeks to several

months• 4-10 trades at any one time

Step #2 Pick Your Trading Method

While in time you will may want have more than one method pick a style that fits your psychology.

The Pull-back Trader

The Break-out Trader

The Contrarian

Step #3 Fundamentals Vs. Technicals

Will you consider the fundamental picture or are you

a technician only?

The Macro Trader

Takes the time to develop a fundamental view about a currency pair.

Kyle Bass

The Technician

Takes trades based off the price action.

"I always laugh at people who say, 'I've never met a rich technician'. I love that! It's such an arrogant, nonsensical

response. I used fundamentals for nine years and got rich as a technician.“ – Marty Schwartz, Market Wizard

Fundamentals and Technicals

Or perhaps you will use a combination of both?

Paul Tudor Jones

Step #4 Mechanical vs Discretionary

Will you be a mechanical or discretionary trader?

Mechanical Trader

Mechanical traders automate their rules so trades are placed by a computer.

Mechanical System Trader

• Good for traders who have trouble pulling the trigger

• Save time… but it is a research war

• You can pay someone to automate your rules

• Deal with data and system errors

• About 10% of successful traders are mechanical system traders

Ed Seykota Master System Trader

“Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept,

which markets to play, and how aggressively to increase and decrease the trading base as a function of

equity change.” – Ed Seykota

“Rules Based” Discretionary Trader

A “rules based” discretionary trader follows a set of clearly defined written rules – as opposed to a “no

rules” discretionary trader.

“Rules Based” Discretionary Trader

• More adaptive system (for the retail trader)

• Include fundamental factors

• Test your system by hand and observation

• Deal with bias in testing • 90% of successful traders

are “rules based” discretionary.

Step #5 Get Clear On Your Systems Objectives

Van Tharp suggest 50% of your system development time should be spent on thinking about your

objectives.

Step #5 Return Objective

What return are you looking to achieve over what period?

– Week – Month– Year

Step #5 Maximum Drawdown Objective

What is the maximum drawdown on your account you are willing to accept over what period?

– Week– Month– Year

Step #5 Chance of Maximum Drawdown

How willing are you to experience your maximum drawdown in order to receive the returns you are

after?

Step #5 Win Rate and Risk/Reward Ratio

You can choose a targeting win rate and risk reward ratio for your system. You can use average risk/reward

or targeted risk reward.

Step #5 Trading Opportunities

How may trades will your system place over what time period?

Step #5 Maximum Number of Positions

What are the maximum number of trades you will hold at any one time?

Example System Type

Metric Week Month Year Return 2.5 6 50Drawdown 1.5 3 15Chance DD 30 20 10Win Rate 60 60 60Risk/Reward 0.3/0.6 0.3/0.6 0.3/0.6Maxpositions

8 8 8

System Type: Swing, Discretionary, Technical and Fundamental, Pull-back Trader

Test Your Assumptions

You then need to run through some simulations to check that your figures are in alignment.

Bonus Step: The Psychology of System Design

What are your beliefs that have caused you to design your system in this way?

Basics #1 Template

Fill out and send me the template and I will review… but only if you have a detailed beliefs

section…otherwise it will be right back at you.

Questions

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Discussion Points

The Seduction of Day Trading

It is easy to get seduced by the fast profits of day trading, but often the longer-term systems are more

suited to the retail trader.

The Market Types Change Rapidly on Lower Timeframes

Keep Returns In Perspective

1% a week adds up to a lot of money over time.

There are Opportunities for Those that Prove Themselves

• Seed funding and incubation programs• Prop trading allocation • Placement in a fund

What Do You Want to See From this Event

Let me know what you want to see from this event…

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Forex System Development Workshop #1

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Questions, Queries, Feedback